Led by the Associated General Contractors (AGC) of America, a group of 20 construction industry organizations representing owners, contractors, subcontractors and sureties issued a collectively endorsed set of construction contract documents in late September 2007. Marketed as ConsensusDOCS, the new contract forms are intended to compete against the well-established standard construction contract forms issued by The American Institute of Architects (AIA) and serve as new model contract forms for all construction industry segments.
In addition to AGC, participating trade associations included the American Subcontractors Association (ASA) Inc., Associated Builders and Contractors, Associated Specialty Contractors (ASC), Sheet Metal and Air Conditioning Contractors National Association, Construction Owner Association of America, Construction Users Round Table, National Association of Surety Bond Producers and NRCA.
AIA, which released the latest edition of its standard construction contract documents in October 2007, did not participate in drafting ConsensusDOCS. (For more information about AIA's forms, see "Separate corners," February issue, page 48).
What it means
Although the term "ConsensusDOCS" is intended to connote consensus among designers, owners, contractors, subcontractors and sureties, there is controversy among the promoters of ConsensusDOCS and engineering and architectural associations and societies regarding the actual participation of designer groups in the development of ConsensusDOCS forms.
Among the 70 contract forms that have been issued as part of the ConsensusDOCS family of documents is subcontract form ConsensusDOCS 750, Standard Form of Agreement between Contractor and Subcontractor. Although there has been considerable publicity extolling the virtues and novel approach taken in drafting ConsensusDOCS, ConsensusDOCS 750 is actually a revised and improved version of a little-used subcontract form issued by AGC in 1998, AGC Document No. 650.
AGC Document No. 650 was the most reasonable subcontract form issued by AGC, but general contractors rarely offered it to subcontractors. Instead, most general contractors continued to use their own one-sided subcontract forms that expand subcontractors' liabilities and strip subcontractors of rights they would otherwise enjoy.
Much of ConsensusDOCS 750 is identical to AGC Document No. 650. The revisions to AGC Document No. 650 that made their way into ConsensusDOCS 750 reflect the additional input of subcontractors, resulting in a reasonable subcontract that is suitable for execution by subcontractors. With the publication of ConsensusDOCS 750, AGC has indicated it no longer will distribute AGC Document No. 650.
It remains to be seen whether general contractors will use ConsensusDOCS 750. Even though AGC publicizes the virtues of jointly developed contract forms, general contractors continue to use individually prepared, self-serving subcontracts that require extensive revision before subcontractor execution.
For many years, AIA A401, Standard Form of Agreement Between Contractor and Subcontractor, which incorporates AIA A201, General Conditions of the Contract for Construction, has been widely recognized as being fair, comprehensive and well-balanced. A401 still is considered the best overall subcontract form you should seek to use.
Overall, ConsensusDOCS 750 and A401 are far more similar than dissimilar. Both are preferable to subcontract forms drafted by individual general contractors.
Payment
ConsensusDOCS 750 requires general contractors to make progress payments and final payments to subcontractors for satisfactory performance of subcontracted work within seven days of receipt of payment from owners for subcontracted work.
If a general contractor does not receive payment from an owner through no fault of a subcontractor, the general contractor is ultimately obligated to pay the subcontractor within "a reasonable time" for work satisfactorily performed.
At the subcontractor's request and expense, the general contractor is to institute reasonable legal remedies and pursue payment of the subcontractor's final payment, including interest, from the owner.
A401's payment provision is better for subcontractors than ConsensusDOCS 750 language. A401 states that if a general contractor does not receive timely payment from an owner or the general contractor does not pay the subcontractor within seven days after receipt of payment from the owner, final payment to the subcontractor shall be made "upon demand." (This assumes nonpayment is not the subcontractor's fault.) A401 does not require subcontractors to pay for the prosecution of claims against owners.
ConsensusDOCS 750 allows for payment of materials not yet incorporated into the work—if approved in advance by the owner—once materials are delivered and suitably stored. To be paid for stored materials, a subcontractor must submit bills of sale and required insurance or other documentation the owner and general contractor request to establish the owner's title or otherwise protect the owner's and general contractor's interests.
A401 allows for progress payments to include payment properly allocable to materials and equipment delivered and suitably stored at job sites, if approved by general contractors, and suitably stored at off-site locations agreed upon in writing.
Right to stop work
Both ConsensusDOCS 750 and A401 allow subcontractors who have performed work satisfactorily and not been paid to stop work, but a subcontractor's right to stop work under ConsensusDOCS language is more limited.
Per ConsensusDOCS 750, if a general contractor has been paid and the general contractor does not pay the subcontractor within seven days after payment is due, the subcontractor, upon giving seven days' written notice to the general contractor, may stop work until paid in full. If the owner has not paid the general contractor, the subcontractor is not entitled to stop work until "a reasonable time" after payment was due and the subcontractor must send a written notice of intent to stop work in seven additional days.
On the other hand, regardless of whether an owner has paid a general contractor, A401 allows subcontractors to stop work if a general contractor fails to pay within seven days of the payment due date if a subcontractor gave seven additional days' written notice. Again, this assumes the nonpayment is not the subcontractor's fault.
With both subcontract forms, the subcontract amount and time can be adjusted by the amount of the subcontractor's reasonable costs of shutdown, delay and startup.
Scope of work
ConsensusDOCS 750 requires subcontractors to provide all labor, materials, equipment and services "necessary or incidental" to complete work in accordance with and "reasonably inferable" from what is indicated in plans and specifications. This language is identical to the scope of work provision in AGC Document No. 650. The ConsensusDOCS 750 language is more expansive than AIA's language.
A401 calls for subcontractors to perform the portion of the work assigned in the subcontract documents. A201 defines the work as the construction and services required by contract documents. AIA does not call for subcontractors to perform work "incidental to" or "reasonably inferable" from what is specified in contract documents.
Subcontract documents
Subcontract documents include ConsensusDOCS 750, the owner-general contractor agreement, special conditions, general conditions, specifications, drawings, addenda, subcontract change orders, approved submittals, amendments, and any pending and exercised alternatives.
Unlike AGC Document No. 650, which states general contractors should "make available" subcontract documents to subcontractors, ConsensusDocs 750 states that before executing a subcontract, a general contractor must provide a subcontractor with copies of the existing subcontract documents to which the subcontractor will be bound. The subcontractor similarly must provide copies of applicable portions of the subcontract documents to its proposed subcontractors and suppliers.
Although A401's 1997 edition required subcontractors to be furnished with copies of subcontract documents before execution of subcontracts, the 2007 edition only requires a general contractor to make the subcontract documents available.
Responsibilities and rights
To the extent the terms of an owner-general contractor agreement apply to subcontract work, ConsensusDOCS 750 states a subcontractor assumes all the obligations, rights, duties and redress the general contractor assumes under the prime contract. Similarly, the general contractor assumes all the same obligations, rights, duties and redress the owner and architect/engineer assume under the prime contract. In the event of an inconsistency among the documents, the subcontract's specific terms are controlling.
A401 is more explicit, stating subcontractors will have the benefit of all rights, remedies and redress against general contractors that general contractors have against owners.
Reviewing plans
ConsensusDOCS 750 requires subcontractors to "make a careful analysis and comparison of the drawings, specifications, other Subcontract Documents and information furnished by the Owner relative to the Subcontract Work" and goes on to state "such analysis and comparison shall be solely for the purpose of facilitating the Subcontract Work and not for the discovery of errors, inconsistencies or omissions in the Subcontract Documents nor for ascertaining if the Subcontract Documents are in accordance with applicable laws, statutes, ordinances, building codes, rules or regulations."
If a subcontractor discovers errors, inconsistencies or omissions, the subcontractor must report such discoveries to the general contractor in writing within three days. If the subcontractor performs work knowing it to be contrary to applicable laws, statutes, ordinances, building codes, rules or regulations without notifying the general contractor and obtaining advance approval by appropriate authorities, the subcontractor "shall assume appropriate responsibility for such work and shall bear all associated costs, charges, fees and expenses necessarily incurred to remedy the violation."
ConsensusDOCS 750 also has a provision (Article 3.28) in which a subcontractor agrees to be bound by and comply with all federal, state and local laws, ordinances and regulations applicable to its work. It remains to be seen whether this provision will be used to try to impose liability on a subcontractor when the subcontractor's work, performed in accordance with the plans and specifications, does not comply with a building code or local regulations.
A401 includes a provision requiring a subcontractor to study the plans and specifications for errors and omissions, but A201 requires a contractor to carefully study and compare contract documents and report any errors, inconsistencies or omissions to the architect.
Although the ConsensusDOCS and AIA subcontracts are similar regarding subcontractors' review of plans and specifications, A201 explicitly states contractors are not required to determine whether plans and specifications comply with applicable laws, statutes, ordinances, codes, rules and regulations. Furthermore, a contractor's liability is limited to the additional costs that would have been avoided had the contractor carefully reviewed the contract documents and promptly notified the architect of errors, inconsistencies or omissions.
Indemnification
Unlike most general contractor-drafted subcontracts, ConsensusDOCS 750 and A401 limit the scope of a subcontractor's indemnification obligation to the extent that a subcontractor's negligence causes bodily injury or property damage. Both subcontracts exclude the subcontractor's work product and have been written so the indemnification obligations are covered by standard commercial general liability (CGL) policies.
In both documents, a subcontractor's indemnification obligation extends to the general contractor, owner, architect, engineer, and their agents and consultants and includes attorney's fees and expenses.
ConsensusDOCS 750 contains an additional sentence that explicitly allows subcontractors to obtain reimbursement in situations where they paid for the full defense of an indemnified party and the indemnified party was found to be partially liable for a claim.
Equipment use
If a subcontractor uses a general contractor's equipment, ConsensusDOCS 750 requires the subcontractor to indemnify and be liable to the general contractor for any loss or damage (including bodily injury or fatality) that may arise from such use unless the loss or damage is caused by the negligence of the general contractor's employees operating the equipment.
With this provision in effect, a subcontractor might have to indemnify a general contractor if an accident was caused by the general contractor's negligence. There is no analogous provision in the AIA A401 subcontract.
Safety violations
ConsensusDOCS 750 contains another indemnification provision requiring each party to a contract to indemnify the other party from and against fines or penalties imposed as a result of safety violations. This applies to the extent that fines or penalties are caused by one party's failure to comply with applicable rules, regulations and other lawful requirements. Again, there is no analogous provision in A401.
Reimbursing general contractors
Although not identified as an indemnification provision, a broad provision in ConsensusDOCS 750 requires subcontractors to reimburse general contractors for any costs for any claim, obligation or lien asserted before or after final payment that arises from the performance of subcontract work. This obligation applies even if a general contractor is making payments on or has paid a subcontractor according to the subcontract's terms.
This broad, open-ended provision could potentially result in substantial cost to subcontractors, and it is not triggered by a breach of contract or negligence by subcontractors. There is no analogous provision in A401.
Claims
Per ConsensusDOCS 750, if a subcontractor wants to make a claim against a general contractor, the subcontractor must do so within 14 days of knowing about the event in question. A subcontractor also must provide written documentation of a claim within 21 days after the written notice. A general contractor must respond in writing no later than 14 days after receiving a claim's documentation.
For claims for which an owner is responsible, a subcontractor must initiate the claim within the time limits stated in the subcontract documents and in sufficient time for the general contractor to initiate a claim against the owner.
The ConsensusDOCS 200 prime contract between owner and general contractor requires contractors to give written notice of claims to owners within 14 days after the occurrence in question or within 14 days after the contractor first recognizes the condition giving rise to the claim, whichever is later.
A401 requires subcontractors to make all claims promptly to general contractors. A401 also requires that if a subcontractor will be part of a claim submitted by a general contractor to an owner, the subcontractor's claim must be received by the general contractor at least two working days before the general contractor must submit it to the owner.
A201, which is part of the subcontract documents, requires claims by either the owner or contractor to be initiated by written notice to the other party and initial decision maker within 21 days after the claimant first recognizes the conditions giving rise to the claim.
However, unlike A401, ConsensusDOCS 750 does not include a provision requiring general contractors to provide written notice of claims to subcontractors. Therefore, a general contractor could issue and enforce a back charge for services rendered without giving a subcontractor notice and opportunity to avoid imposition of the alleged back charge.
A401 also requires general contractors to furnish subcontractors with written compilations of the services and materials provided by the 15th of the following month. There is no similar provision in ConsensusDOCS 750.
Plans and specifications
ConsensusDOCS 750 obligates subcontractors to perform work that may be shown only in the plans or stated only in the specifications just as though the work had been fully described in both as long as the work is reasonably inferable as being necessary to produce the indicated results.
Unlike A401, ConsensusDOCS 750 also states that in cases of conflicts between drawings and specifications, specifications will govern. In the event of omissions or errors in figures, drawings or specifications, a subcontractor must immediately submit the matter to the general contractor for clarification by the owner. The owner's clarifications are final and binding on all parties, subject to an equitable adjustment in subcontract time or price.
Construction schedule
ConsensusDOCS 750 states subcontractors must provide general contractors with any scheduling information pertaining to subcontracted work. After consulting subcontractors, general contractors will prepare, revise and update construction schedules. General contractors and subcontractors are bound to progress schedules.
General contractors have the right to determine and, if necessary, change the time, order and priority in which various portions of work will be performed and all other matters relative to subcontract work.
However, a provision added to ConsensusDOCS 750 that does not appear in AGC Document No. 650 states a subcontractor may be entitled to additional compensation and time if changes to the construction schedule increase the subcontractor's time and costs to perform the work.
A401 requires general contractors to promptly notify subcontractors of changes in construction schedules and does not address the issue of whether subcontractors would be entitled to additional compensation or time resulting from schedule changes.
Subcontractor warranty
Subcontractors expressly agree in ConsensusDOCS 750 to promptly correct, after receiving written notice from general contractors, all subcontract work that proves to be defective within one year from substantial completion of the subcontract work or for a longer time period if required by specific warranties in contract documents.
Subcontractors warrant all materials and equipment furnished will be new, of good quality, in conformance with the subcontract documents, and free from defective workmanship and materials. If an architect, engineer or general contractor rejects a subcontractor's work for nonconformance with the subcontract requirements, the subcontractor must promptly correct the work.
Subcontractors are responsible for the costs of correcting the work, as well as the expenses of the architects, engineers or contractors that result from the defective work.
Builder's risk insurance
When requested in writing by a subcontractor, a general contractor must furnish a copy of the builder's risk or other property insurance procured by the owner or general contractor.
If there is no builder's risk insurance policy in place, the general contactor is to notify the subcontractor. The subcontractor may then obtain builder's risk insurance to cover the subcontractor's work and obtain a change order for the cost of the builder's risk insurance. To the extent a claim is covered by builder's risk insurance, the contractor and subcontractor waive all rights against each other and the owner, architect and engineer.
Risk of loss
Unlike A401, ConsensusDOCS 750 explicitly states subcontractors will bear the risk of loss or damage to subcontract work through the date of substantial completion unless insurance covers the loss.
ConsensusDOCS 750 also requires subcontractors to take necessary precautions to properly protect subcontracted work and the work of others from damage caused by the subcontract work. If a subcontractor damages others' work, the subcontractor must promptly remedy the damage to the general contractor's satisfaction or the general contractor may, after 48 hours' written notice to the subcontractor, remedy the damage and deduct its costs from any amounts due the subcontractor unless such costs can be recovered through applicable property insurance.
Additional insureds
ConsensusDOCS 750 asks parties to check a box if a subcontractor is to name a general contractor as an additional insured on the subcontractor's CGL insurance policy or provide an owners' and contractors' protective liability insurance policy. If the box is checked, the subcontractor's insurance is to be primary and the subcontractor is to name the general contractor as an additional insured.
ConsensusDOCS 750 indicates the additional insured coverage applies only with respect to liability for bodily injury or property damage related to the subcontractor's (or those acting on the subcontractor's behalf) negligent acts or omissions in the performance of the subcon-tract work. With this language in effect, a subcontractor would not be required to use a CG 20 10 additional insured endorsement form, which provides for broader coverage of acts not necessarily caused by a subcontractor's negligence as some general contractors seek to require.
A401's 2007 edition requires subcontractors to name general contractors, owners, architects and architect's consultants as additional insureds for claims caused in whole or in part by a subcontractor's negligent acts or omissions. It also requires subcontractors to name general contractors as additional insureds for claims caused in whole or in part by a subcontractor's negligent acts or omissions during the subcontractor's operations. Because the ConsensusDOCS 750 language is more narrowly written, it is preferable to the new A401 provision.
Dispute resolution
Similar to the 2007 edition of AIA contract documents, the ConsensusDOCS forms ask parties to choose a binding dispute-resolution procedure by checking a box. If the parties fail to check a box, litigation is the default alternative.
This procedure is followed in the ConsensusDOCS owner-general contractor contract and subcontract forms. In contrast to the arbitration provisions formerly included in AIA and AGC contract forms, the parties will find themselves in civil litigation unless they affirmatively chose arbitration.
But before they follow the designated dispute-resolution procedure, a general contractor and subcontractor are to try to reach a resolution through direct discussions between the parties' representatives. If the parties' representatives are not able to resolve the dispute within seven days, they must inform senior executives in writing. Senior executives then will meet within seven days to try to reach a resolution. If matters remain unresolved after 15 days from the date of the first discussion, formal mediation is to proceed. The mediation must convene within 30 working days and conclude within 45 working days of when the matter was first discussed.
The parties will share the mediation costs. If the mediation does not result in resolution, the dispute-resolution procedure checked by the parties in the subcontract then proceeds.
If a dispute between a general contractor and subcontractor involves the owner, the dispute between the general contractor and subcontractor is to be decided by the same tribunal and in the same forum as the dispute between the general contractor and owner. If the contract between the owner and general contractor does not allow for consolidated dispute resolution with a subcontractor, the dispute between the subcontractor and general contractor is to be postponed pending conclusion of the dispute between the general contractor and owner.
At the conclusion of those proceedings, disputes between the subcontractor and general contractor will be submitted to mediation. At that point, ConsensusDOCS 750 states that any disputes not resolved by mediation shall be decided in the manner indicated in the agreement between the owner and general contractor.
Therefore, with respect to a dispute that involves an owner, a subcontractor does not have a say in the dispute-resolution forum even if there is a separate dispute-resolution proceeding between the general contractor and subcontractor.
Costs of dispute resolution
ConsensusDOCS 750 states dispute-resolution costs will be borne by the nonprevailing party as determined by the dispute's adjudicator. Although not defined in ConsensusDocs 750, costs are likely to be limited to such items as an arbitration filing fee and court costs and would not cover attorney's fees.
The predecessor language in AGC Document No. 650 stated the prevailing party was entitled to recover reasonable attorney's fees, costs and expenses and defined how the prevailing party was determined. These provisions were dropped during the transition from AGC Document No. 650 to ConsensusDOCS 750. A401 does not seek to allocate costs or attorney's fees in a binding dispute-resolution procedure.
Location of dispute resolution
Unless parties agree on a different location, ConsensusDOCS 750 states the binding dispute-resolution proceeding is to be held in the locality where the construction project is located.
A401 states mediation shall be held in the place where the project is located unless the parties agree on a different location but does not address where the binding dispute-resolution proceeding is to take place.
Waiver of subcontractor claims
Unless modified by the parties, ConsensusDOCS 750, similar to A401 but unlike many general contractor-drafted subcontract forms, does not preclude subcontractors from recovering costs associated with delays general contractors cause.
Submittals
ConsensusDOCS 750 requires subcontractors to promptly submit all shop drawings, samples, product data, manufacturers' literature and similar submittals required by the subcontract documents for approval to general contractors.
A subcontractor must deliver its submittals to a general contractor in a manner consistent with the progress schedule and must not delay the general contractor or others in the performance of the construction work. The approval of any subcontractor submittals will not authorize deviations, substitutions or changes in the requirements of the subcontract documents unless express written approval is obtained from the general contractor and owner. Such approvals will be promptly noted in a subcontract change order within seven days following the general contractor's approval.
A401 and the A201 contain similar provisions.
Site visitation
Before a subcontractor can perform any work, ConsensusDOCS 750 calls for the subcontractor to visually inspect a job site to become generally familiar with local conditions and correlate site observations with the subcontract documents.
If the subcontractor discovers any discrepancies between the site observations and subcontract documents, the subcontractor must promptly report the discrepancies to the general contractor.
Although there is no comparable provision in A401, A201, which is incorporated by reference into A401, requires a contractor to visit a site before executing a contract to become generally familiar with local conditions and correlate personal observations with the contract requirements. Before starting each portion of the work, A201 requires a contractor to take field measurements of any existing conditions and observe any conditions at the site affecting the work. General contractors using A401 will expect subcontractors to comply with these requirements pertaining to the subcontracted work.
Consequential damages
Except for liquidated damages and excluding losses covered by insurance, general contractors and subcontractors waive claims against each other for consequential damages to the same extent owners and general contractors do, including damages for loss of business, loss of financing, principal office overhead, loss of bonding capacity, loss of profits on other projects and damage to reputation.
A401 contains a broader mutual waiver of consequential damages provision by which general contractors and subcontractors waive claims against each other for consequential damages arising out of or relating to subcontracts.
Storage
ConsensusDOCS 750's provision addressing storage areas is less favorable to subcontractors than the corresponding provision in A401. ConsensusDOCS 750 states general contractors will allocate adequate storage areas, if available, for subcontractors' materials and equipment. Unless otherwise agreed, general contractors will reimburse subcontractors for additional costs of having to relocate storage areas.
A401 states general contractors will provide suitable areas for storing subcontractors' materials and equipment. General contractors will reimburse subcontractors for additional costs resulting from relocation of storage areas.
Liquidated damages
If a contract between a general contractor and owner provides for liquidated damages or other damages for delay beyond the completion date and such damages are assessed, the general contractor may assess a share of the damages against the subcontractor in proportion to the subcontractor's share of the responsibility for the damages.
The assessment's amount must not exceed the amount assessed against the general contractor. ConsensusDOCS 750 goes on to say the provision does not limit a subcontractor's liability to a general contractor for the general contractor's actual damages caused by the subcontractor. Therefore, a subcontractor may be liable for liquidated damages and actual delay damages sustained by a general contractor.
Hazardous materials
If a general contractor has obligations or rights pertaining to hazardous materials under the owner-contractor agreement or by law, ConsensusDOCS 750 assigns the subcontractor those same obligations and rights with regard to the subcontract work.
ConsensusDOCS 200, Standard Agreement and General Conditions between Owner and Contractor, states a contractor is responsible for the proper delivery, handling, application, storage, removal and disposal of all materials and substances brought to a work site by a contractor and used.
Regarding any hazardous material that is discovered at a work site but not brought to the work site by a contractor, the contractor is not obligated to perform work until the hazardous material is removed or rendered or determined harmless by the owner; the contractor also is entitled to an equitable adjustment in the contract price or contract time if the contractor incurs additional costs or is delayed because of the presence or remediation of hazardous material.
A401 requires subcontractors to comply with safety measures initiated by general contractors, as well as applicable laws, statutes, ordinances, codes, rules and regulations, and prime contract terms. If a subcontractor plans to use a hazardous substance at a work site, the subcontractor must give advance written notice to the general contractor. The subcontractor is to indemnify the general contractor for the cost and expense the general contractor incurs for remediation of a material or substance brought to the site and negligently handled by the subcontractor and if the subcontractor does not take reasonable precautions to prevent foreseeable injury resulting from a hazardous material or substance.
Increased costs or time
ConsensusDOCS 750 allows a subcontractor to assert a claim if a general contractor's clarifications or instructions in response to a subcontractor's request for information are believed to require additional time or costs.
Communications
Except in cases of emergencies, ConsensusDOCS 750 requires subcontractors to direct all communication to general contractors. A subcontractor must designate in the subcontract the person, subject to the general contractor's approval, who will be the subcontractor's authorized representative. This representative will be the only person to whom the general contractor shall issue instructions, orders or directions.
Assignment of work
ConsensusDOCS 750 does not allow subcontractors to assign any part of subcontractors' work without general contractors' prior written approval.
A fine option
ConsensusDOCS 750 is an improved version of AGC Document No. 650. It is a reasonable, fair subcontract that can be executed by subcontractors without fear that its standard terms are one-sided. Although there are some provisions favorable to subcontractors in ConsensusDOCS 750 that are not included in A401, A401 is, overall, the safer form for subcontractors to use.
Both ConsensusDOCS 750 and A401 are far preferable to typical subcontract forms general contractors submit to subcontractors. Despite the publicity generated by AGC surrounding the release of ConsensusDOCS, whether general contractors will actually use ConsensusDOCS 750 any more than the little-used AGC Document No. 650 or the joint AGC/ASA/ASC subcontract issued more than a decade ago remains in question.
Stephen M. Phillips is a senior partner with the Atlanta-based law firm Hendrick, Phillips, Salzman & Flatt.
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